Just three weeks ago, Bitcoin prices had climbed back to about $295, rising from the mid-$220s of early June.

But as the debate over the best way to scale the Bitcoin network to handle the ever-increasing number of transactions has escalated, the Bitcoin price has plunged. The price of Bitcoin is down 21% since July 28.

The Bitcoin civil war took a more serious turn last weekend when two leading Bitcoin developers, Gavin Andresen and Mike Hearn, released an alternative version of the Bitcoin network software that implements their preferred solution to the problem.

That news added to the cloud of uncertainty. The Bitcoin price drop deepened and even suffered a "flash crash" on Tuesday.

The Growing Rift Sparks a Bitcoin Price Flash Crash

Centered on the Bitfinex Bitcoin exchange, the flash crash was fed by margin call selling. It briefly dropped the Bitcoin price as low as $179.35, close to the digital currency's lows for the year.

Unfortunately, the dispute seems likely to drag on for weeks, depressing Bitcoin prices for as long as it lasts.

While some within the larger Bitcoin community have taken sides, others are worried the civil war is a threat to Bitcoin's future, even its very existence.

So what's this all about, anyway? It has do with how Bitcoin is structured.

Every Bitcoin transaction must be verified by the Bitcoin miners and broadcast to the entire global network. This is done through the creation of digital blocks. One block is created about every 10 minutes, containing all the transactions from that time span. It is then added to the blockchain, the digital record of every Bitcoin transaction ever made.

But right now each block is just 1 megabyte in size, limiting the Bitcoin network to about seven transactions per second. By comparison, a credit card company like Visa Inc. (NYSE: V) has the network capacity to execute tens of thousands of transactions per second.

Everyone agrees that Bitcoin needs to be able to handle a lot more transactions per second to become practical. In fact, it's expected that if nothing is done, Bitcoin will hit a wall next year or by 2017 at the latest.

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